Assuming an upward-sloping AS curve,if an economy is at full employment and consumption spending decreases while all other levels of spending remaining constant,then
A)Increased unemployment results.
B)Any GDP gap disappears.
C)Inventory levels are less than desired until a new equilibrium is reached.
D)Changes in consumption spending have no impact on GDP.

Question

Quizplus · Accepted Answer

When consumption spending decreases while all other levels of spending remaining constant, this results in a decrease in aggregate demand. This will shift the AD curve leftward, causing a short-run equilibrium at a lower level of output and a higher price level. With an upward-sloping AS curve, this will cause unemployment to increase. Hence, increased unemployment results.

Assuming an Upward-Sloping AS Curve,if an Economy Is at Full